The root of the American Dream is home ownership. That concept came after World War II when we rewarded our courageous veterans with the Veteran Administration home mortgage program and the rest of the GI Bill of Rights (education, healthcare, etc.).
The first subdivision was built in Long Island, NY and it spread like a wildfire throughout our nation. Home building, housing finance, home furnishings, etc. became a big part of our economy. It is just un-American, evil and vile that the "Wall St. Gangsters" would choose their next big hustle on the American economy to be the home ownership model.
They conspired and the biggest "fish" to catch would be minorities. It didn't matter if they were perspective home owners, established home owners or whatever. They could exploit them and exploit them they would.
My wife, Kay, and I were realtors back in the 1980's. We were pretty successful at it. The mortgage protocol was this: You would interview an inspiring homeowner. You would acquire their credit rating, liquid funds on hand and proof of income. Proof of income was important after you obtain a favorable credit rating.
The liquid funding was a variable depending on the amount of down payment that would be required by the mortgage broker. That would vary from no down payment for VA financing to 20 percent down payment which was the most popular system. After that you would determine 25 percent of their net income or 34 percent of their gross income. If they could apply either of those income amounts to pay the monthly mortgage note (have it free to use and not obligated to other debts) than that became the magic number.
That would be the mortgage payment they could afford.
That magic number would determine the price range for the house hunting. We had to stick with that in order to be successful – finding a home to buy. That was the rule unless the seller was going to finance the deal himself. These were mortgages. There was no prime, sub-prime, alternative lending back then. It was square business and everyone was happy.
But then came the "do gooders" who insisted on an increase in homeownership for minorities. Through business development, job opportunity and increases in net worth that would eventually happen. But that would take time and they wanted the quick fix. Banks couldn't break their principles. At least that is what we thought. The Wall St. Gangsters, looking for new hustles after the Dot Com bust, decided to take advantage of this advocacy from liberal groups pushing more Community Reinvestment Act activity and the loosening of banking principles.
They started creating Hedge Funds that would target home ownership. It became known as Sub-Prime financing. The costs were extravagant much like the easy credit rip offs in depressed neighborhoods. Keep in mind that Hedge Funds are not regulated like banks. 80 percent of hedge funds aren't even registered by the Security Exchange Commission. They are "financial cowboys" free to do anything until they are caught. These scum actors drew up targets and the bulls eye of each target were minority communities.
The key was to underwrite the mortgage with onerous fees that they could get up front. Then the trick would be to resell the paper (mortgage debt) to a traditional source like a bank, investment firm or even better a government sponsored enterprise like FannieMae or FreddieMac. It seemed downright crazy and even illegal but the regulations for financing were so relaxed after the Repeal of the Glass Steagal Act (Clinton Administration). They could actually do this dirty deed. Eventually it was all going to hit the "fan" but they had time to make their quick money and the "hammer" would fall on the banks and the new homeowners.
The evil doers got away with it. When the floor fell through the Hedge Funds couldn't be found. They had the money and disappeared. The result was the biggest banking failure and an overwhelming surge of foreclosures in Black neighborhoods everywhere. Black America lost about 35 percent of its net worth. It will take decades to regain the losses. We all waited for the "federal calvary" to come. They came but they did not come to the homeowners. They came to the sucker banks.
Yes, there was a bailout for the banks. Naively, Congress thought they would pass the nearly $1 trillion onto the homeowners. Ha! The banks took that money and settled their own balance sheets. The leftover funds were invested in the depressed stock market so that they could play "buy low, sell high." The stock market grew 60 percent after the bailout and thus the surviving banks are having their best quarter earnings in history.
What about the homeowners? They were left hanging (twisting slowly in the wind).
Harry Alford is the co-founder, President/CEO of the National Black Chamber of Commerce, Inc. Website: www.nationalbcc.org. Email: [email protected]